The Arabic word Gharar is a fairly broad concept that literally means deceit, risk, fraud, uncertainty or hazard that might lead to destruction or loss. Gharar in Islam refers to any transaction of probable objects whose existence or description are not certain, due to lack of information and knowledge of the ultimate outcome of the contract or the nature and quality of the subject matter of it. For example, the Prophet (pbuh) has forbidden the purchase of the unborn animal in the mother’s womb, the sale of the milk in the udder without measurement, the purchase of spoils of war prior to distribution, the purchase of charities prior to their receipt, and the purchase of the catch of a diver.

Islam has clearly forbidden all business transactions, which leads to exploitation and injustice in any form to any of the parties of a contract. It seeks protecting the different parties from deceit and ignorance by forbidding Gharar in any commercial exchange contracts that are not free from hazard, risk or speculation about the essential elements in the transaction to either party, or uncertainty of the ability of one party to honour its rights and obligations. It requires that all Islamic financial and business transactions must be based on transparency, accuracy, and disclosure of all necessary information so that no one party has advantages over the other party.

The rationale behind the prohibition of Gharar is to ensure full consent and satisfaction of the parties in a contract. Full consent can only be achieved in full disclosure and transparency and through perfect knowledge from contracting parties of the counter values intended to be exchanged. The prohibition of Gharar protects against unexpected losses and the possible disagreements regarding qualities or incompleteness of information.

Instead, the Shari’ah promotes the principle of profit-loss sharing between banks and entrepreneurs as an approach to encourage the spirit of brotherhood and cooperation in business relationships. Mutual risk-sharing could help absorbing the weight of loss by sharing it equitably between all parties. However, risk and uncertainty are conditioned by enough adequacy and accuracy of information to make reasonable estimates of the outcomes. Tolerable risk and uncertainties cannot exist in contractual obligations.

Islam has also categorically and firmly prohibited all forms of gambling. Maysir and Qimar are forms of gambling transactions that are considered as totally inequitable in Islam. Maysir refers to the easy acquisition of wealth by chance, whether or not it deprives the other’s right. Qimar means the game of chance in which one gains at the cost of others.

Even though, gambling consists in a form of speculation and that There should not be any place for commercial operations in Islam as it is purely speculative. The prohibited speculation under the Shari’ah is not that, which relies on the analysis of a lot of economic and financial data and which involves the investment of assets, skills and labour. Rather, it is one involving an effortless gain similar to a gambling scheme or activity. This is because the buyer is engaged in a transaction aimed at making profit through trading and not through dishonest appropriation of the property of others.

Riba, which means not only usury, but all forms of unearned income, has been strictly prohibited by Islam. Although the Qur’an did not specify any particular kind of riba, Muslim scholars have categorized it in two types: riba al-nasi’ah, and riba al-fadl. Riba al-nasi’ah refers to the interest on loans; its prohibition essentially implies that the fixing in advance of a positive return on a loan as a reward for waiting is not permitted in Islam. Riba al-fadl is the excess over and above the loan paid in kind.It lies in the payment of an addition by the debtor to the creditor in exchange of commodities of the same kind. The Shari’ah wishes to eliminate not merely the exploitation that is intrinsic in the institution of interest, but also that which is inherent in all forms of unjust exchange in business transactions.

Despite the fact that interest occupies a central position in modern economic system and that it became the very life blood of the existing financial institutions, Islam considers that the principle of charging interest is quite opposite of that of business in the spirit of sharing and cooperation and that lending on interest is not as a business in the real sense.

In legalizing trade and condemning interest, Islam considers that there are fundamental differences between the nature of profit resulting from interest charges and that earned by trade. In interest-based transactions, there may be no equitable division of profit between the buyer who makes a profit on the sale of good purchased, and the seller who derives a profit in consideration of the labour and time spent in procuring the goods. Moreover, there could be no end for an interest-based transaction, since there could always be interests of unpaid interests as long as the principle amount loaned is not fully returned. This could, in extreme cases, create un-repayable debt for generations

The rationale for the prohibition of interest the Islamic economic framework highlights how the risk-reward sharing would be more conductive to the realization of equity and the promotion of entrepreneurship. In fact, the interest-based banking system relies heavily on collateral and gives inadequate consideration to the strength of the project or the ultimate use of the financing. Even though collateral and cash flow are indispensable for ensuring repayment of loans, giving them undue weight result in a relative misestimating of the purpose for which borrowing takes place. Hence, that system tends to enforce the unequal distribution of capital by allocating financial resources mainly to the rich, who have the collateral and cash flow.

Islam considers even interest-based loans taken for investment in a productive activity as not equitable because in the profits that may accrue from it is not required to be known forehand and if there is a loss, the entrepreneur has to bear the entire loss in spite of all the risk and engagement he took, whereas the money lender, who did less sacrifice than the entrepreneur, gets an effortless profit determined by a positive rate. In Islam both risks and rewards should be shared by the different parties.

And since the unrestricted power of the creditor to make profit from interest has no regard to the financial ability of the debtor to repay indebtedness, middle-class consumers, as well as the developing countries, could be caught up in a never-ending debt-trap. And because the Riba system encourages living beyond one’s means for both individuals and governments, it results in an accentuation of macroeconomics, inflation and external imbalances in addition of squeezing the resources available for development. This leads some poorer countries to the over-exploitation of their earth’s resources and thus to the destruction of the ecological system.

Moreover, the high degree of interest rate volatility in the modern economies injects great uncertainty into the investment markets and makes it difficult for entrepreneurs to have a long-term investment vision and to make their decisions with confidence. This turbulence in the financial markets and the rise to fictitious assets tend to aggravate economic instability.

“In order to create a comprehensive and robust financial system, Islamic financial institutions need to be innovative and focus on developing Venture Capital (VC), private equity and alternative investments. This will create an industry with a niche that is capable of competing with conventional banks, with the added value of shared wealth for the society. It is hoped that Islamic VCs will play a major role in developing Muslim countries”.

The above observation was made by Mr. Khaled M. Al-Aboodi, CEO & General Manager of Islamic Corporation for the Development of the Private Sector (ICD), Jeddah while speaking as a guest speaker at the inaugural session of the New Delhi based Institute of Objective Studies, (IOS), two-day International Conference on "Prospects for Islamic Venture Capital Funds in India" which began here on Saturday at the Parliament House Annexe. The International conference is the part of the Silver Jubilee celebrations of IOS.

Continuing Mr. Al-Aboodi said the beauty of Islamic Finance is that it is a constitutionally developing and evolving industry, with new and innovative financial instruments and hybrid products being developed to fit particular business models, industries and countries, creating an edge over conventional products.

He said this is the best divine alternative economic system available before the world and in which ever country this system is in vogue the recent economic meltdown has not affected its economy. While in comparison to this interest-based conventional banking institutions have become victims of bankruptcy and the world is in the grip of worst economic crisis, he pointed out.

Mr. K. Rahman Khan, Deputy Chairman, Rajya Sabha who chaired the inaugural session in his presidential speech, while emphasizing the advantages of Islamic banking, said that it has originated from the Holy Qur’an which is not religious book of Muslims alone but for the whole humanity as it is a book of guidance for one and all.

Mr. Khan said that in every economic transaction four things should be kept in mind viz. (i) justice, (ii) equilibrium, (iii) truth and (iv) fairness. Any transactions which complies with these four principles as enunciated by the Holy Qur’an then it will ensure well being, peace and harmony among the people which is the hallmark of a good society. The Holy Qur’an has stated that none should be exploited and Islamic banking takes care of this. However, the conventional banking system fails to grow and assist the poor who are thus exploited at the cost of the rich people in society, he added.

Mr. D. R. Mehta, former Chairman, SEBI and Dy. Chairman, RBI, Jaipur, while delivering inaugural address said that if India has to progress then Islamic Venture Capital Funds, (IVCFs), has to be launched in the country as Malaysia and other countries are successfully experimenting with it. In India the prospects for IVCFs are very bright and it should be developed for different sections of society, he added.

Dr. Mohammad Manzoor Alam, Chairman IOS, while speaking a few words on the occasion said that responsibility and prudence, to be precise, are essential features of Islamic finance including Islamic Venture Capital. He said IVCF is an increasingly visible component of the capital fund scene globally. It has extraordinary potential to be of use in India’s expanding economy over the years, he added.

Saturday, 14 May 2011

Following a strong year in 2010, Malaysia’s manufacturing sector looks set for a repeat performance in 2011 in its effort to draw in foreign investment. The Malaysian Investment Development Authority (MIDA) is setting a target of bringing in RM55bn ($18.22bn) in new investment for the year.

In 2010, the manufacturing sector attracted a total of RM47.2bn ($15.64bn) in approved investments across some 910 projects, with this representing an increase in value of 44.8% from RM32.6bn ($10.8bn) and 766 projects the previous year.

According to MIDA’s director-general, Jalilah Baba, investment totalling RM14bn ($4.64bn) is already “in the pipeline” to be realised this year, and the organisation is now focusing on the oil and gas sector in particular, holding talks with major international players.

This is welcome news for the country’s broader effort to drive economic growth, which was detailed in the Economic Transformation Programme (ETP) released in October 2010. The ETP aims to achieve GDP growth of 5-6% annually over the next 10 years. This would raise Malaysia’s gross national income (GNI) above RM1trn ($331.33bn), or $15,000 per capita, by 2020. In 2009, Malaysia’s GNI was RM665m ($220.33m), or $6700 per capita. The government’s goal is to reach high-income economy status by 2020, with the World Bank classifying this as a country with a per capita income of at least $12,196.

Private sector spending is expected to drive much of this growth, with the ETP responsible for attracting investment. To this end the ETP has highlighted 131 entry point projects and 60 business opportunities under 12 National Key Economic Areas to boost private investment and create 3.3m jobs. It is banking on these entry point projects to generate an estimated RM794.5bn ($263.24bn) worth of investments, out of the total of RM1.4trn ($463.86bn) required to drive GDP growth over the next 10 years.

According to the first annual report of the Government Transformation Programme (GTP), one of a package of initiatives under the New Economic Model launched by the government a year ago, progress towards realising the ETP’s objectives has so far been strong. The report stated that the ETP had generated RM95bn ($31.48bn) worth of investment, representing 12% of its 10-year target, as of the end of March.

Speaking on the sidelines of the Invest Malaysia 2011 conference, held in mid-April in Kuala Lumpur, MIDA’s Jalilah was optimistic about attracting the investment needed to make the ETP a success. “Strategies have been put into place,” she told local media. “We are very serious about the ETP and the GTP.”

In May 2010, MIDA set up the National Committee on Investments, which became the central body for facilitating foreign capital inflows. In addition, the organisation is also taking a range of other steps to help make the country more appealing for foreign investors, including “offering investment facilitation where we [deal with] enquiries and visits for potential investors” and “handling their proposals for speedy approval”, Jalilah said. “We want to make sure there are no roadblocks to woo them here,” she added.

In terms of target markets, the focus is largely on boosting investment from China and the Middle East. In 2010 Chinese investment in the manufacturing sector totalled some RM639.5m ($211.88m), making it the ninth-largest source of foreign direct investment in the sector. According to Jalilah, the organisation is in talks with several Chinese firms regarding projects in the state of Sarawak, which has attracted particular interest from China due to its abundant power supply and available land.

With oil prices at sustained high levels, major oil producers in the Gulf region have additional funds available for overseas investment, and MIDA is stepping up efforts to tap into this. Saudi Arabia, Qatar and the UAE will be the primary focus of MIDA’s efforts to boost investment from the region, Jalilah told local media. Middle Eastern investment was RM4.6bn ($1.52bn) in 2010, primarily in the food, textiles, biotechnology and metals sectors.

Highlighting the country’s continued appeal for investors, Prime Minister Najib Razak unveiled 12 new projects in electronics, infrastructure, and oil and gas, with a total investment value of $3.7bn, in his keynote address at the Invest Malaysia 2011 conference on April 19th. “Today’s announcement shows the continued interest of investors in the ETP,” he told the press. While plenty more remains to be done to meet the government’s goals for 2020, this and other recent investment success stories are evidence of a good start for Malaysia in its move to become a high-income economy.

Tuesday, 10 May 2011

Covered head-to-toe in a black abaya embroidered with red and yellow flowers, Amal Abbas waits for her turn to place a deposit at Cairo’s Al Baraka Egypt Bank, one of Egypt’s two fully-fledged Islamic banks.

Although Egypt is considered the birthplace of Islamic finance, which adheres to Islamic principles banning interest and speculative trading, its growth has lagged due to past corruption scandals, while the previous government sought to enforce a more secular financial system.

But after the Egyptian revolution toppled Hosni Mubarak and his government, Muslims like Abbas are embracing Islamic banking, raising the prospect that Egypt could become another thriving centre of Islamic finance.

“I prefer Islamic finance, it keeps me far from usury and I feel my money is blessed,” said the 50 year-old research centre manager at the Mohandessin branch of Al Baraka Egypt Bank.

“My husband has been dealing with mainstream banks for more than 30 years and all his projects failed because they were funded by unblessed money.”

According to a 2009 report by consulting firm McKinsey, Islamic banking only accounts for 3% to 4% of Egypt’s $193bn banking industry. That compares with 46% in the UAE.

“In a post-Mubarak era, the urgency of rebuilding and changing things will clash with the absence of resources and lack of money,” said Ibrahim Warde, adjunct professor at The Fletcher School of Diplomacy at Tufts University.

That will likely present an opportunity for Islamic finance houses in the Gulf region, which now serves as the industry’s global hub.

“Egypt is going to look towards the Gulf for money and it’s going to have to offer Islamic options to maximise investments.”

Cairo-based National Bank for Development, which is converting into a full-fledged Islamic bank, is already 49%-owned by Abu Dhabi Islamic Bank. Al Baraka Egypt is in fact a unit of Bahrain’s Al Baraka Bank.

There’s also keen interest in Egypt for Islamic insurance, or takaful, which makes up 5% of Egypt’s $1.45bn insurance market but is expected to grow dramatically, according to a March report by Islamic consultancy BMB Islamic.

Salama Islamic Arab Insurance’s chief executive Saleh Malaikah said last month that demand for its products in Egypt have grown significantly since the revolution.

According to data from Bankscope and Thomson Reuters, Egypt could see Islamic finance assets grow to $10bn in 2013 from $6bn in 2007.

Challenges remain, given the less than encouraging history of Egypt’s Islamic finance industry.

Millions of Egyptians were stung by ponzi schemes in the mid-1980s, when a number of money management companies touted Islamic investments at returns above local interest rates.

A new post-Mubarak administration is expected to show more interest in Islamic finance, despite concerns that a growing Islamic finance industry could also provide political support for Islamic opposition groups in the country of 80mn.

Egypt will need to adopt Islamic banking as one tool to appease politically active Islamic groups or face a barrage of criticism for adhering to the previous regime’s hard line against the industry, said Humayon Dar, chief executive of consultancy BMBIslamic.

“Egypt is a religiously sensitive country. There are a number of families and small savers who wouldn’t want to use the conventional system,” he said. “If there’s a movement towards interest-free banking, that would draw deposits.”

Grassroots support is already emerging among conservative Muslims. Manal al-Moursi, another bank customer at Al Baraka Egypt Bank, said Egyptians are turning to Islamic finance, in part, to show their support for the Muslim Brotherhood.

The Muslim Brotherhood, founded in 1928, was long persecuted as the main challenger to the ruling National Democratic Party in parliament and was one of the most vocal protesters during the demonstrations that toppled Mubarak on February 11.

With the dissolution of the NDP and growing acceptance of the Muslim Brotherhood in mainstream politics, experts say Islamists will have increasing influence in the new Egypt and Islamic finance will serve as one way to propagate Islamic values and gain supporters.

“The Muslim Brotherhood is for Islamic finance because it is related to religion,” said Mohasseb Refaat, deputy manager at Bank of Alexandria. “They will promote the idea so long as it is in their benefit.”

Refaat said the industry is likely to gain more footing in Egypt if the Brotherhood secures a significant number of seats in the 508-member parliament in September. One leading Brotherhood figure said the group could field candidates for as many as 49% of the seats.

Even secularists calling for less religion in society may make a pre-emptive attempt to promote Islamic finance ahead of elections to reach a wider group of constituents.

“Secularists will see supporting Islamic finance as a way of stealing the thunder of the Islamists by giving people an outlet to express their religiosity,” Warde said. “We’ve seen that strategy in other markets such as Iraq and North America. Even groups that were opposed to political Islam looked to Islamic finance as a way of preventing extremism.”

Britain and France, for example, have changed regulations to accommodate Islamic transactions. And Malaysia, with its thriving dual system of conventional and Islamic finance, has been the biggest success story in the industry, serving as a model for new markets looking to offer Islamic products.

Decades of lost growth, however, have left Egypt lacking proper financial regulation to accommodate Islamic financial instruments such as Islamic bonds, or sukuk.

The head of the Egyptian Financial Supervisory Authority (EFSA) said last year Egypt would issue its first regulations governing sukuk in the second half of 2010 and later delayed further to the first quarter of 2011. That deadline has passed as well as the government restructures and plans now appear in limbo.

Experts say the government will need to issue debt guidelines for sukuk issuance and remove tax barriers that make Islamic transactions commercially unviable in order to draw foreign investment from oil-rich Gulf countries.

And the revolution may spell a willingness among Egyptians to embrace alternatives, particularly if they can derive benefit from it for some of the social ills that sparked the protests.

Under the Mubarak regime, critics said the rich benefited from lending and other business opportunities while the poor were plagued by unemployment and low wages. Malik said Islamic finance with its focus on interest-free financing and ethical investments would appeal to the common man.

Thursday, 5 May 2011

From a bird's eye view, one could differentiate between three basic types of Islamic risk management products and mechanisms: First, those that are formally being standardized, such as the ISDA/IIFM Ta'Hawwut (Hedging) Master Agreement; second, risk management methods directly based on the well-recognized Islamic financing modes and rules; and third, the possibility to use formally Shariah-compliant mechanisms to replicate conventional risk management products and risk profiles.

As for the first type, there is a global trend towards the unification or de factostandardization of risk management products, which can be currently observed in the market. One example of this was the creation of Islamic profit rate swaps, which was an Islamic replication of conventional interest-rate swaps through an Islamic Swap Master Agreement that mirrored the ISDA Master Agreement for IRS in a fully Shariah-compliant way. In September 2006, the ISDA and the IIFM signed a memorandum of understanding as a basis for developing a master agreement for over-the-counter Shariah-compliant derivatives. This ISDA/IIFM Ta'Hawwut (Hedging) Master Agreement is being created to take account of Shariah requirements with the assistance of the IIFM Shariah Advisory Panel.

In general, hedging product markets of any kind will only thrive once the general and legal framework for capital market transactions, including contract and property laws, facilitates this. For instance, the legal framework for financial collateral transactions is crucial for such instruments, and local law provisions need to recognize foreign law governed contracts as well as the enforceability of contracts according to their terms. Moreover, the enforceability of close-out netting and of collateral transactions is an important issue.

The second type of risk management products and mechanisms is based on the use of the well-respected Islamic contracts and financial instruments. Within this group, there are strategies which are undoubtedly fully compliant with Shariah, while others may be criticized as being mere replications of conventional vanilla derivative products. For example, standard Murabahah and Salam contracts can be efficiently used to construct Islamic inflation hedges without replicating any conventional derivatives. On the other hand, the replication of e.g. forwards (by Wa'd, or through a combination of Murabahah and Salam transactions), call options (by using Arbun) and, consequently, even put options (by using put-call parity) may certainly seem questionable to many scholars. The same is true for futures contracts, which are possible to replicate in a formally Shariah-compliant manner in various ways.

This problem is even more severe in the case of products like Wa'd-based total return swaps, which have gained popularity in global Islamic finance during the past two years. While various scholars regarded such transactions as being Shariah-compliant (even if those products enabled Islamic investors to benefit from clearly non-Islamic returns), their use may lead to highly undesirable reputations risks, especially with regards to Islamic retail customers. Furthermore, one can bring forward various arguments against such a "Shariah conversion technology", e.g. by making recourse to the concept of "sadd al-dhara`i", which blocks ostensibly legitimate means when they are employed for illegitimate end. Beyond that, there is certainly a difference between using the Libor as a benchmark for pricing and using non-Shariah-compliant assets as a determinant for returns (which can be done in Islamic TRS). By means of these total return swaps, the investor actually participates in the non-Shariah-compliant investments, however indirectly, and the money paid will most certainly be used to finance those other investments. The attempt to draw a legal analogy ("qiyas") between the use of Libor as a benchmark for pricing and the use of the performance of non-Shariah-compliant assets as a determinant for returns could therefore be regarded as inaccurate and misleading. From such a perspective, there is no need even to resort to "sadd al-dhara`i", since the transaction can be prohibited outright.

There are other Islamic hedging products, which are also being criticized by some scholars, but which are close to being already de factostandards, such as currency swaps based on Murabahah or Qard. Moreover, variants of Islamic standard contracts may become more popular in the future, such as diversified deferred price products, value-based Salam, credit-based Mudarabah, Mudarabah (or Musharakah) with deferred sale, as well as methods like appointing debt collectors, creating quasi-debt discount facilities, using cooperative hedging mechanisms or bilateral mutual adjustments. On the "options" side, implicit contract options (especially Khiyar al-Shart and Khiyar al-Tayeen, as well as Istijrar contracts) are likely to gain importance for product developers, and here again there will be an intense discussion on what is allowed and what is not.

At this point, it should be emphasized that it is a trend currently in Islamic product development to try to replicate conventional financial products, but that this may not be the most promising route to follow. Even apart from ethical and religious principles and considerations, it should be kept in mind that Islamic instruments, which try to imitate conventional ones but under the additional constraints of Shariah precepts, will mostly be less efficient than the "original". In fact, it can hardly be expected that an imitation under additional constraints will be as effective and as cost-efficient, and it is well-known that many Islamic replications may come with increased transaction costs.

Furthermore, such a trend makes the Islamic finance industry a mere follower of the dominating conventional financial industry. While this is clearly understandable, considering the direct competition Islamic institutions face and the conspicuous difference in size of markets and of being more attractive to global and non-Islamic investors, it would certainly be more appealing for those target customer groups to add Islamic products to their portfolios, particularly when these products are highly innovative and weakly correlated to other conventional financial instruments. This can surely be accomplished by a product development strategy that starts from the existing and accepted Islamic financing modes.

At last, even when an Islamic institution does not target non-Islamic potential customers, replicating conventional products may not be the best way to go. In fact, conventional financial instruments have been developed to solve "conventional" problems and needs, and it may well be that the needs of the Islamic industry differ from those faced by its conventional counterpart. Islamic banks must manage risks specific to themselves, which cannot be encountered in the same way and extent in non-Islamic institutions. This holds true both at the product-specific / individual level and on the portfolio / balance-sheet level for Islamic banks.

In general, Islamic finance offers a wide range of possibilities to manage risks other than just replicating conventional complex derivatives and hedging products. The focus, thus, should be on choosing and structuring the most adequate risk management strategies, which are truly compliant with Shariah. This is especially true for the management of counterparty / credit risks and liquidity risks, which cannot easily be hedged away, as the current financial market crisis reminds us, andwhich can be a threat to the real existence of a financial institution.

Wednesday, 4 May 2011

The Middle East may be the heart of Islam and its investors may have plenty of liquidity, but the region’s Islamic banking sector remains relatively immature and undeveloped compared to markets in Muslim south Asia.

But although the recent turmoil in the Middle East has certainly done the local Islamic finance industry no favours, new financial products and regulations are appearing across the region, helping the sector mature both in core Gulf countries and those such as Jordan and Oman that have so far had have limited sharia-compliant options.

Most recently, the Sultanate of Oman on Tuesday issued a royal decree allowing the establishment of the first Islamic banks in the country.

The timing of the decree was a bit of a surprise, said Gigi Varghese, a research analyst with Vision Securities in Oman, but the idea of opening an Islamic bank had been batted around for a while.

Because the country has no formal Islamic banks, many local depositors keep their money in non-interest bearing demand deposit accounts.

Potentially, wealthier individuals now using Islamic banks outside the country could bring their money home. But most of the country’s deposit base is not that sophisticated and the new regulations will mostly draw those demand deposits away from local conventional banks, said Murad Ansari, banking analyst with EFG-Hermes.

Elsewhere, Jordan recently saw its first domestic issuance of an Islamic bond, or sukuk, issued by a local cement firm owned by Saudi investors who wanted to use sharia-compliant funding.

Because Jordan lacks tax and other regulations to accommodate the sukuk structure, the bankers involved had to ask the government for waivers specifically for the deal. And, because the local Islamic banks were too small to handle the $120m issuance, conventional banks joined the financing team, said Nasri Al-Ashkar, a banker with Capital Bank, which arranged the deal.

“Basically the Jordanian government extended exemptions particularly for this issuance making it a feasible structure,” Al-Ashkar said. “We’re probabaly the first that went to the government with this request.”

The industry dislikes describing anything as “innovative” – according to Islamic law, certain types of innovation are forbidden – but new innovations in the field have happened even in the United Arab Emirates and Qatar, which have long-established Islamic financial sectors.

Even in the Gulf, analysts say, Islamic investors have lots of liquidity, but the sharia-compliant offerings that exist are insufficient and not diverse enough to meet their demand for products in which to invest.

Last November, the UAE launched its inaugural action of sharia-compliant certificates of deposits, which the central bank described as the state’s “first Islamic liquidity management tools”.

And in Qatar, a decision in February to prevent conventional banks from offering sharia-compliant products is expected to give a boost to the country’s Islamic banking sector, which will no longer have to compete with larger conventional banks for the business of more observant Muslim customers.

“What we see in the GCC is what we have seen in Malaysia maybe , five, six, seven or eight years ago, ie, really the building up a framework of … not only a sukuk market, but other instruments,” said Paul-Henri Pruvost, a credit analyst with Standard & Poor’s.

Upcoming Events

Alfalah Consulting's facebook

NOTICE

Alfalah Consultingis NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be fromAlfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is info@alfalahconsulting.com. If you've received an email from afalah.consulting@gmail.com, that's NOT from us. Be cautious!